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Plunging oil prices may trigger unrest
By Mark Thompson @MarkThompsonCNN December 12, 2014: 6:35 AM ET

'You've been hacked, you just don't know it'
LONDON (CNNMoney)
A global glut of oil will persist next year, putting further pressure on prices and raising the risk of unrest in some producing countries.
That's the stark warning from the Paris-based International Energy Agency, which on Friday cut its forecast for global demand growth in 2015. It now sees demand growing by less than 1% next year.
Oil prices have already fallen by more than 40% in six months, but there's little sign of that stimulating demand yet, or constraining production enough to remove excess supply.
"Oil price drops are sometimes described as a 'tax cut' and a boon for the economy, but this time round their stimulus effect may be modest," said the agency, which monitors energy market trends for 29 of the world's wealthiest nations.
U.S. crude prices fell again on Friday to around $59 a barrel.
oil prices fall
So what's stopping market forces bringing supply and demand back into line? Here are five key reasons the agency identified in its monthly report:
1. While the crash will reduce exports from some countries such as Russia, it will depress their demand too.
2. Consumers who have found ways to use less energy, or alternatives to oil, won't be won back entirely by cheaper prices.
3. Governments in some emerging markets are making use of the opportunity to reduce energy subsidies, meaning users won't get the full benefit of cheaper crude prices. This means they're unlikely to consume more.
4. Weak economic growth in much of the developed world, flat wages and a broader risk of deflation will blunt the stimulus of lower prices.
5. The U.S. energy boom will continue in 2015, albeit at a slightly slower pace than this year.
Without supply disruptions or a cut in OPEC output, that means oil storage in the West could be full to overflowing next year.
That all adds up to a pretty grim outlook for poorer exporting nations, whose economies rely heavily on energy.
"The resulting downward price pressure would raise the risk of social instability or financial difficulties if producers found it difficult to pay back debt," the agency said.
First Published: December 12, 2014: 6:35 AM ET

http://www.cnbc.com/id/102263901?trknav=...:topnews:1

Would global deflation really be that bad?
Matt Clinch | @mattclinch81
35 Mins Ago
CNBC.com

The collapse in oil process may only be a few months old, but economists are already debating its long-term effects: will the world be gripped in growth-sapping Japanese-style deflation or will the world economy benefit from a period of lower prices?
Deflation is classed as when consumer prices turn negative with the theory being that buyers would hold off from making purchases in the hope of further falls. This raises the fear of a prolonged deflationary spiral with the slump becoming so entrenched that it impacts growth and does little for the potential of wage increases.
The price of oil has seen a dramatic 40 percent fall since June and has weighed on headline inflation figures and is likely to continue to do so next year.

Read MoreIEA warns on social unrest as oil plummets
Consultancy Capital Economics estimate that the energy component of inflation in advanced economies will fall temporarily to around minus 10 percent next year. Some consumers see little price reductions at the pump as their governments subsidize the commodity, but in the U.S. many have been cheering the drop in oil which has put more money in their pocket.
Bill Blain, a fixed income strategist at Mint Partners argues that lower oil prices does not necessarily translate into growth, however.
"Oil price declines are initially hailed as positive growth drivers – but in an already recessionary environment, perhaps they have become a soporific too far?," he said in a morning note on Friday.
"I am just not perceiving the global economy on the verge of a boom...the risks look to the downside – especially as the effects of lower oil are factored in."

Read MoreChina factory output, retail sales send mixed signal
Consumer prices in November rose 0.3 percent for the euro zone, compared to the year before, and the European Central Bank has regularly downgraded its prospects for the next year as 2015 approaches. In the U.S., annual inflation still remains below the 2 percent goal given by the Federal Reserve. The Bank of England is expecting the U.K.'s inflation rate to fall below 1 percent next year and China's number currently sits at a five-year low.

'Baked in the cake'


Bethany Clarke | Getty Images
Economists at Capital Economics, fronted by their chief global analyst Julian Jessop, predict that the average inflation rate in the seven major advanced economies will fall only around 1 percent next year because of the oil price decline. It expects a growing number of economies to experience a period of outright deflation but then their outlook turns somewhat better.

"We expect global demand to expand at a moderate pace during the next two years," they said in a research note on Friday. "China's growth rate will probably slow further, but not collapse...a short period of deflation in fast-growing economies such as China would not pose a significant threat to growth prospects or to debt sustainability."
The fall in inflation is already "baked in the cake," according to the consultancy, adding that lower oil prices will drop out of the year-on-year comparisons in the second half of next year, meaning figures are likely to rebound.

Could China deflation spark a euro zone break-up?


Societe Generale's uber-bearish strategist Albert Edwards believes that investors are slowly waking up to the idea that the Chinese have a "major deflation problem" and its transition into a more consumer-led economy won't be a smooth one.

Traditionally the country is known for its cheap exports that compete strongly with domestically produced goods around the world. That model is unlikely to change soon, according to Edwards.
Read MoreOil price fallout: Producers struggle as GDP grows
"The realization that China will be exporting more deflation helps to explain why U.S. inflation expectations continue to plunge despite recent stronger than expected real economy data," he said in a note on Thursday.
He continues to warn that weakness in emerging markets could seriously impact Germany, the traditional powerhouse for the euro bloc. Germany sees China as one of the biggest buyers of its goods. Edwards said that Germany will eventually have to "walk the walk" and aggressively cut spending as it falls into recession next year.

"My own view is that the euro zone cannot withstand another full scale recession and will ultimately fracture despite the best efforts of the ECB," he said.


Matt Clinch
Assistant Producer, CNBC.com

(12-12-2014, 10:24 PM)greengiraffe Wrote: [ -> ]If one think that Central Bankers are so naive to see all their efforts going up in smoke, then black whatever events will occur... weak oil prices is to punish the dark forces of geo-politics while giving the ailing world the long over due octance...

economics is a good see-saw... not a one sided depressing deflationary view cause the world has proven that there is no room for pain and deflation - we are all human beings afterall...

(12-12-2014, 09:51 PM)BlueKelah Wrote: [ -> ]WTI Below $60 now http://www.bloomberg.com/news/2014-12-12...share.html

Next bubble would be the stock markets which has also been prop up by QE. Have been expecting markets to react to end of QE and so far they have not reacted much but looks like a correction will finally be here, lead by oil drop.

Central bankers are not naive, they are influenced by their governments. Black swan events will occur, they always have, the next one is just a matter of time. In such times, central bankers can only react and do damage control.

Weak oil prices now are mainly a result of shale boom in USA and OPEC not cutting their output causing supply glut. US punishing Russia or ISIS with low oil prices are just conspiracy theory.

" ...
Weak oil prices now are mainly a result of shale boom in USA and OPEC not cutting their output causing supply glut. US punishing Russia or ISIS with low oil prices are just conspiracy theory."

Fully agreed.

I am still amazed that people still believes in Conspiracy Theory that USA did not land on the moon in 1969. USA cannot contains the leak as secret as ability to snoop every citizen. How else to contain thousands who involves the rocket launch including the astronauts themselves.

Even white house staff can leaks thing ... is just matter of time.

I believe oil still got lot more to go down. I bought ProShares UltraShort Bloomberg Crude Oil (SCO) 2 weeks ago, already make good profit. I think support at 60$ broken, next worse case will be 40$. But i will be using trailing stop to protect my profit. Why not use this instrument to profit? JMO

(13-12-2014, 12:08 AM)corydorus Wrote: [ -> ]" ...
Weak oil prices now are mainly a result of shale boom in USA and OPEC not cutting their output causing supply glut. US punishing Russia or ISIS with low oil prices are just conspiracy theory."

Fully agreed.

I am still amazed that people still believes in Conspiracy Theory that USA did not land on the moon in 1969. USA cannot contains the leak as secret as ability to snoop every citizen. How else to contain thousands who involves the rocket launch including the astronauts themselves.

Even white house staff can leaks thing ... is just matter of time.

Weak oil price is 2/3 weak demand and 1/3 due to over supply. Japan in recession. Europe is just a hair line away from recession. I think next year they will be in one. China already slow down. And many more countries will be in recession soon. Very soon , Singapore will join them too.

Petro$ recycling was the result of geopolitical wrangling credited to Kissinger by having a constant demand of USD as well as subjecting Middle East to the fate of the USD

Oil rebounded from US$10+ when Berlin Wall crumbled. OPEC knows and can see the rise of shale since 5 years ago. The only thing changed is Ukraine. Oil is the bloodline of global economy and it is also a powerful weapon

NB thought digress a bit... Obviously China and Russia have no issue sending a man into space, but they have problem getting the man BACK when the craft lands. There are a whole hosts of supporting logistics and infrastructure on earth but none on moon

I tend to listen to both side as long as it makes some sense.

US oil settles at $57.81 per barrel, the lowest since May 2009
Reuters with CNBC
3 Hours Ago
Reuters


Oil fell to fresh lows not seen since May 2009 on Friday with U.S. crude prices slipping below $58 a barrel on concerns over a global supply glut and weak demand.
U.S. WTI crude settled down $2.14 at $57.81 per barrel, the lowest since May 2009. The contract has lost about 11 percent this week.

Brent crude was down nearly $2 at $62 per barrel and earlier hit a low of $61.35—the lowest since July 22, 2009.

Down 33 percent already, it is on track for its biggest quarterly drop since the fourth quarter of 2008. Brent is down more than 9 percent this week, taking its fall since a June peak above $115 to 45 percent.

The International Energy Agency (IEA) said oil prices would likely come under further pressure, cutting its outlook for demand growth in 2015 and predicting that non-OPEC output gains would increase global supplies.

Read MoreBill Richardson: Why oil prices could drop to $45

The IEA, which coordinates the energy policies of industrialized countries, cut its outlook for global oil demand growth for 2015 by 230,000 barrels per day (bpd) to 900,000 bpd on expectations of lower fuel consumption in Russia and other oil-exporting countries.

"It spells out the main scenarios that are in the market and said that stockpiles will be substantially bigger in the first half of 2015," said Bjarne Schieldrop, chief commodity analyst for SEB in Oslo.

Read MoreOil price fallout: Producers struggle as GDP grows


The Organization of the Petroleum Exporting Countries (OPEC), which accounts for a third of world oil output, sees 2015 demand falling to its lowest in more than a decade.

"It's following the trend lower. The market has reacted strongly to the OPEC forecast cut, and it is focusing only on the negative," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.

He added there was little technical support until $50-$55.

Energy companies cut 29 oil drilling rigs in the United States this week, the most in two years, as oil prices kept sliding, bringing crude down 47 percent since June, data showed on Friday.

Read More$60 oil will be norm for next 5 years: Economist

Remarks by Saudi Arabia's oil minister reiterating that the kingdom would not cut output, and a surprise jump in U.S. crude and distillate inventories, have also helped drive down prices this week. Analysts said there was scope for oil to slip further.

"We are getting quite close to excess supplies which could push prompt Brent (prices) down to incentivise traders to store increased volumes of crude on ships, as onshore storage fills up," Abhishek Deshpande, an analyst at Nataxis told the Reuters Global Oil Forum. He said oil could briefly fall as low as $40 per barrel.

Saudi Arabia pumped 9.610 million barrels of oil per day in November, some 80,000 bpd less than its production in October, an industry source said on Friday. But the amount of crude supplied to the market inched slightly higher to 9.420 million bpd, which is 40,000 bpd more than in October, the source told Reuters.
Earlier, China released data showing near-record refinery runs in November, with factory output growth weaker than expected. High Chinese oil demand, which has remained above 10 million bpd for the past three months, could help provide a price floor.
The number of rigs drilling for oil declined to 1,546 in the week to Dec. 12, according to data from oil services firm Baker Hughes. Twenty-one of the 29 rigs that were cut were in the Permian Basin.

The number of rigs has declined in six of the last nine weeks since hitting a record high of 1,609 in mid October.

Oil rout positive for global economy: IIF
Boost for global demand as oil price fall shifts purchasing power to consumers

By
Anthony Rowley
WHAT IT MEANS: Assuming the oil price decline is largely sustained, the net effect could be a rise in global GDP by roughly 0.5 per cent over a two-year period. PHOTO: BLOOMBERG


DESPITE turbulence in energy markets and dramatic falls in the price of oil, "the overall net impact on the global outlook is clearly positive", the Washington-based Institute of International Finance (IIF) said in a report on Friday.

The result of the oil price decline will be a "shift in purchasing power from producers to consumers that should provide a significant boost to global demand at a time of excess capacity", said the IIF, which speaks on behalf of some of the world's leading banks and other financial institutions.

"The price drop also provides more space for supportive monetary policies in a number of economies as well as for cutting energy subsidies. Assuming that the price decline is largely sustained, we estimate that the net effect will be to raise global GDP by roughly 0.5 per cent over a two-year period."

"The biggest beneficiaries are net energy importing countries with large terms of trade gains. These include the euro area and Japan among the advanced economies."

The US economy will also get a significant boost, given its high energy intensity, with some minor offset from the impact on oil sector profits and investment, the IIF suggested.

"Among emerging markets, big winners include China, Korea and Thailand. Large oil exporters substantially dependent on oil-related revenues will experience weaker current account positions and substantial pressures on their budgets."

Most Gulf exporters such as Saudi Arabia have sufficient accumulated assets to absorb the impact, but other countries with thinner cushions will need to cut back spending and face pressures on their exchange rates, the IIF said. But "heavily exposed countries include Iran, Iraq, Nigeria, Russia and Venezuela".

The drop in oil prices and related economic impacts have broad consequences for financial markets, according to the IIF, which has nearly 500 member institutions worldwide. "Equity markets gain overall from such a supply shock, although oil-related sectors will underperform. The impact on long-term interest rates is less clear-cut, depending on the balance between higher real rates from increased growth expectations and lower inflation expectations.

"A related implication is that monetary policy divergence between the US and the Euro area is likely to be reinforced, potentially paving the way for further US dollar strength."

Meanwhile, New York-based international rating agency Standard & Poor's said in a statement on Friday that "global oil and gas markets are in a state of significant flux as we approach the New Year". "The benchmark price of Brent crude is near a five-year low, the US shale revolution is fostering an ever-greater level of American energy independence, and China is pouring money into energy development to meet its surging demand," S&P noted.

After Opec's recent decision not to cut production, S&P has lowered its price assumptions on oil for 2015. "We now expect the West Texas Intermediate benchmark price at an average of US$75 a barrel and Brent at US$80," the agency said.

It seems like we have a candidate for a sovereign default (again) soon. Even when oil was at 100dollars/barrel, it was just scrapping by.

Venezuela’s Got $21 Billion. And Owes $21 Billion
Of all the financial barometers highlighting the crisis in Venezuela, this may be the one that unnerves investors the most as oil sinks: The country’s foreign reserves only cover two years of bond payments.

The government and state-run oil company owe $21 billion on overseas bonds by the end of 2016, an amount equal to about 100 percent of reserves. Those figures explain why derivatives traders aren’t only betting that a default is almost certain but that it will most likely happen within a year.............

http://www.bloomberg.com/news/2014-12-12...uilds.html